Big Oil has been the go-to boogeyman for President Biden and Democrats over alleged “price gouging,” with “Putin’s price hike” a close runner-up.
But profits made by the oil industry — while at record levels — ebb and flow with global energy markets, not because the firms are manipulating costs, according to market analysts.
“It’s just political posturing and pandering,” Ed Hirs, an energy economics professor at the University of Houston, said of the president’s anti-corporate rhetoric. “If the focus is just making profits, when is [Mr. Biden] going to turn his guns on Apple?”
Apple made more than $25 billion in the first quarter of this year and nearly $95 billion in 2021, staggering numbers that are far higher than that of any energy corporation.
Recent high earnings of top oil companies allowed the industry to recoup its record losses during the pandemic and returned billions of dollars to shareholders.
Profits from 2017 through March 2022 for ExxonMobil, which Mr. Biden has most frequently targeted, total nearly $61 billion. The Texas-based corporation’s profits were $5.5 billion in the first quarter this year, roughly double from the same time last year but down about 38% from the final quarter of 2021. The company made more than $23 billion in profits for 2021 after taking a loss of $22.4 billion in 2020.
“Exxon made more money than God this year,” Mr. Biden said in June before incorrectly suggesting that it was not paying taxes.
Other leading oil companies, including ConocoPhillips, Shell, Chevron and the British oil company BP, also recovered from huge losses during the pandemic to see their profit margins significantly widen.
Mr. Biden and his Democratic allies on Capitol Hill have repeatedly demanded that the profit-driven companies invoke their inner “patriotism” to slash earnings and reduce prices, a notion that industry analysts have scoffed at.
The American Petroleum Institute, the nation’s largest lobby for the oil industry, characterized profit-slashing proposals pushed by Democrats as “a really insane policy for policymakers to take at a time of energy scarcity.”
Congressional Democrats have gone a step further than Mr. Biden by advocating for a windfall profits tax on Big Oil, an idea the industry has argued would do anything but deflate high gas prices by disincentivizing new production and run counterintuitive to the transition to clean industry.
“All of these propositions would cut off the kind of energy we need in the U.S. — not advance it,” API President and CEO Mike Sommers recently told reporters. “Some of the biggest investors in terms of renewable and alternative energy are the oil and gas industry.”
Oil companies are admittedly enjoying their profits and returning large chunks to investors. However, they contend that they lack control over what drivers pay at the pump.
The blame game swirling in Washington over who is responsible for soaring prices at the pump is fierce. In reality, the factors that have contributed to nearly $5 per gallon of gasoline are far more complex than the blanket accusations levied by elected officials on both sides of the aisle.
Production plummeted during the pandemic, and demand has returned at a far greater pace than supply. That factor, paired with much of the world ditching Russian energy in response to Moscow’s invasion of Ukraine, has placed an outsized strain on consumer demand and caused oil markets to hold anywhere from $100-$120 per barrel.
On top of that, U.S. refining capacity has shrunk and has not returned to pre-pandemic levels. It’s currently near max capacity and is at 94%, according to the U.S. Energy Information Administration.
Oil refineries, which are expensive long-term investments, typically post modest profit margins of 1.5%, according to Mr. Hirs. That means oil companies have instead chosen to expand existing refineries in recent decades rather than build new ones, the last of which came online in Louisiana more than four decades ago in 1977.
Because of this, it means $5 gas prices are as if oil were nearly $200 per barrel, energy analyst Dan Dicker said.
On the other side of the political aisle, Republicans have grasped onto the notion that Mr. Biden‘s climate change initiatives have hamstrung the ability to “unleash American energy,” such as rolling back new drilling on federal lands, canceling the Keystone XL pipeline and pushing for more clean energy.
But oil executives and industry groups note that high prices are primarily thanks to the pandemic and Russia. Anti-fossil fuel rhetoric from the Biden administration hurts long-term investment and certainly does not help, they say, but they have shied away from pinning the crux of the blame on the president.
Roughly 66% of the 128 oil and natural gas executives surveyed by the Dallas Federal Reserve in June said the primary reasons driving uncertainty in their companies’ outlooks were either oil price volatility or issues related to labor, inflation and/or supply chains. Roughly 26% said the leading driver was government regulation.
Still, the oil industry has been crystal clear that it wants Mr. Biden to cool his rhetoric, and it has advocated for policy reforms like cutting red tape that they say hinders new energy projects of all forms.
“Your administration has largely sought to criticize, and at times vilify, our industry,” Chevron Chairman and CEO Mike Wirth wrote in a recent letter to Mr. Biden. “These actions are not beneficial to meeting the challenges we face and are not what the American people deserve.”